Italy Pays More For 6 Month Debt Than America Pays For 30 Year, As LTRO Claims Its First Bank Insolvency

Today Italy had a rather critical Bill auction in which it sold €9 billion in debt due six months from today. Obviously, since the maturity is well inside of the LTRO, the auction itself was rather meaningless from a risk standpoint. Still, the good news is that Italy managed to place the entire maximum amount targeted. The bad news: it cost Italy more to raise 6 months of debt, or 2.957%, than it costs the US to borrow for 30 years (2.70%). Not only that but the average yield 2.957% was the highest since December when the Italian 10 Year was north of 7%, and nearly 50% higher compared to the 2.104% at auction on May 29, or less than a month ago. The Bid/Cover of 1.62 was unchanged compared to the 1.61 at the May 29 auction. From Reuters: "Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," said Richard McGuire, a rate strategist at Rabobank. On Tuesday, Spain paid 3.24 percent to sell six-month bills. Madrid is seen at risk of having to ask for more aid after formally requesting a European rescue for its banks this week. But doubts are also growing on Italy's ability to keep funding its 1.95 trillion euro debt, which makes it the world's fourth-largest sovereign debtor. Domestic appetite has so far allowed the Treasury to complete 56 percent of its 445-billion-euro annual funding plan."

It gets worse. Recall that the LTRO was conceived back in December 2011 precisely to facilitate the sovereign debt ponzi in a way where domestic banks would borrow from the ECB only to buy their own sovereign debt, a circumvention of the ECB's prohibition to buy sovereign debt in the primary market, and a plan that was so circular those who actually could see through it would scream a warning to anyone who cared. Six months later, the chickens have come home to roost:

Italian banks may find it increasingly difficult to keep shouldering the country's large funding needs as foreign investors continue to shun its debt.

Italy's third-largest lender Monte dei Paschi dei Siena said on Wednesday it would progressively reduce its holdings of Italian government bonds, after tapping state aid to plug a capital shortfall partly due to its exposure to sovereign risk.

And there it is: instead of a solvency enhancing instrument, the LTRO, by forcing banks to double down on sovereign bonds, has resulted in accelerating their demise as BMPS showed yesterday!

Which incidentally may have just blown up Mario Draghi's Plan B - as a reminder, the only reason why sovereign debt tightened last week was due to the announcement of expansion in eligible collateral by the ECB, something which most saw as a precursor to a new LTRO. Well, if the LTRO is now seen for what it truly is: a mechanism that precipitates insolvency, will anyone have any interest in it, especially with vigilantes dying to rip apart any firm that is associated with the Stigma of needing LTRO and thus signing its own death sentence? And all this ignores the fact that, as we have been saying since January, Europe has run out of actual, money good assets...